Indian Oil: On slippery ground

Oil bonds to help IndianOil bounce back

Indian Oil Corporation's June quarter results reflect the well-documented difficult operating environment for oil marketing companies.

Also, the company hadn't received its share of oil bonds by the end of the last quarter. As a result, the company's operating loss (excluding other income) amounted to Rs 844.5 crore in Q1 FY07 as compared to an operating profit of Rs 476.72 crore a year earlier, despite net sales expanding 26 per cent y-o-y to Rs 48,688.39 crore.

In case of HPCL, its operating loss amount to Rs 516.61 crore in Q1 FY07 as compared to an operating loss of Rs 373.64 crore a year earlier.

IOC has highlighted that its net under-realisations for auto fuels, kerosene and LPG amounted to Rs 4,898 crore in the June quarter as compared to Rs 3,194 crore a year earlier.

Meanwhile, upstream players have shared the subsidy burden to the tune of Rs 2,987 crore in Q1 FY07 as compared to Rs 1,674 crore a year earlier.

A partial relief for the company came in the form of improved performance of its refining business. The company's refineries throughput was at 10.03 million tonnes in Q1 FY07 as compared to 9.18 million tonnes a year earlier.

In addition, gross refining margins of the company were at $6.7 per barrel in the last quarter as compared to $6.16 per barrel a year earlier.

IOC had divested some of its stake in ONGC in the last quarter and it had booked an exceptional item of Rs 3,224.78 crore.

As a result, its net profit amounted to Rs 1,780.52 crore in the June 2006 quarter as compared to a net loss of Rs 57.93 crore a year earlier.

Going forward, the company's financial position is expected to improve once it receives its share of oil bonds, given the difficulties in raising retail fuel prices.

Tata Chemicals: Robust numbers

For Tata Chemicals, June 2006, was a good quarter. Standalone net sales and operating profit improved by 45.6 per cent and 44.5 per cent respectively over Q1 FY06.

Fertiliser sales increased by 74 per cent due to higher realisations and enhanced trading activities as well as a lower base in Q1 FY06 due to delayed monsoons, which had pushed sales to Q2. Last year, its DAP production was curtailed due to lower availability of phosphoric acid.

But with its 33 per cent stake in IMACID, Morocco, it will be able to source sufficient amount of the key raw material. Tata Chem's soda ash volumes improved along with a marginal price hike, resulting in better realisations.

The proportion of dense soda ash stood at 32 per cent of total soda ash sales. Dense soda ash is used by the glass industry, which is growing at about 8 per cent plus while detergents, the other major user industry is growing at 2-3 per cent.

Tata Chem did face some pressure on account of higher freight costs and higher raw material costs in fertilisers. As a result operating profit margin of 21.24 per cent was at about the same level as in Q1 FY06.

Soda ash volumes are likely to grow at 5-7 per cent this year and prices should remain firm, given that the threat of excess supply from China is reduced.

DAP and NPK fertilisers are expected to grow at 15-20 per cent this year. In the past year, the stock has gone up 14 per cent while the Sensex has risen 47 per cent in the past year. Its current price discounts the estimated FY07 EPS around 11 times.

Dabur: Looking good

Driven by double-digit growth in most business segments, Dabur's numbers for the June quarter have been fairly good with the top line growing by nearly 15 per cent y-o-y to Rs 470 crore.

The operating profit margin was higher by 170 basis points at 13.4 per cent thanks to the company's ability to take some price hikes and increase the proportion of insourcing""raw material as a percentage of revenues has dropped by 200 basis points to 41 per cent y-o-y .

Fiscal gains from the Uttaranchal and Jammu units have also contributed to better margins as a result of which the operating profit has risen 31 per cent y-o-y to Rs 63.9 crore. What has propped up the profit at the net level, up 38 per cent, at Rs 48.2 crore is the higher other income.

Among the segments, the hair care oil has grown at over 11 per cent while the home care portfolio has grown by 12.5 per cent.

As always, the Dabur management continues to be aggressive and is looking to buy out businesses like it did with the Balsara portfolio. It is now raising around $200 million to fund acquisitions overseas in the areas of healthcare and skincare.

While all segment should do well in a favourable demand environment, going ahead, the margins could be under pressure due to higher costs and spend on promotions.

The stock has been an outperformer in the last three months though before that it had underperformed the broader market.

At the current price of Rs 138, the stock trades at 28 times estimated FY07 earnings and 24 times estimated FY08 earnings, factoring in growth from existing operations as also the inorganic opportunities that the company may cash in on.

With contributions from Amriteshwar Mathur and Shobhana Subramanian